10 Sep 2020

Jan Krahnen: "The ECB leaves the field to governmental fiscal policy"

SAFE Director sees the current monetary policy decision of the European Central Bank as a wait-and-see stance, which nevertheless harmonizes with sovereign aid programs for companies during the Corona crisis

With its recent monetary policy decision, the ECB's Council has not made any changes to the key interest rate level or to the scope of the "Pandemic Emergency Purchase Program" (PEPP) to deal with the corona crisis in the euro zone. Jan Krahnen, Director of the Leibniz Institute for Financial Research SAFE, explains:

"With today's decision, the ECB remains true to its line and leaves the field of fiscal policy to the eurozone countries. The focus will thus be on the major tax-financed aid programs in the current Corona crisis.

This division of tasks between the ECB and fiscal policy makes sense because while sovereign corona aid programs are primarily aimed at the industry the ECB's monetary policy is directed at the banks. The new element of the current sovereign crisis management is the active concentration of financial resources on bank customers, not on the banks themselves. This ultimately also protects the banking sector, which speaks to the ECB's attitude of providing liquidity to banks. With this course, the ECB is also keeping its options open for further action in the future".